The second installment of Indonesia's September economic policy package, unveiled on Tuesday (29/09), received a warmer response from market participants compared to the first one (released on 9 September), evidenced by rebounding stocks and a stronger rupiah rate yesterday. Indonesia's latest policy package involves interest rate tax cuts for exporters, the speeding up of investment licensing for investment in industrial estates, and a relaxation of taxes on imports of capital goods in industrial estates and in the aviation industry.
On Tuesday (29/09), Indonesian Chief Economics Minister Darmin Nasution announced that, as part of the economic policy package, the time required to process investment permits for investments in Indonesia's industrial estates will be curtailed from eight days to only three hours. This fast service will only be available to those companies that invest at least IDR 100 billion (approx. USD $7 million) in an industrial estate and plan to employ at least 1,000 people.
Indonesian President Joko Widodo said on Tuesday that the government is preparing two bonded logistic zones, one in Cikarang (West Java) and the other in Merak (Banten) as it aims to offer more efficient industrial facilities to investors. These zones should serve as a hub for capital goods, intermediary goods, and raw materials. The zone in Cikarang is designed to serve the logistics-related manufacturing industry, while the zone in Merak is to function as a storage facility for fuel logistics. Due to the country's inadequate infrastructure, logistics costs are high hence curbing the businesses' competitiveness. In turn, this has limited investment in Indonesia's manufacturing industry, an industry that has been struggling to revive since the Asian Financial Crisis.
These bonded zones are attractive as the government provides several taxation facilities, such as the exemption of value-added tax (VAT) and sales tax on imported intermediary goods, as well as the possibility to postpone import duty payments.
Meanwhile, the Indonesian government scrapped VAT for imports of aircraft components and aviation safety equipment. This exemption applies to both airlines and those third-party companies that import such aircraft components. The move will support companies engaged in the aviation sector. Airlines in Indonesia have been plagued by financial turmoil due to the depreciating rupiah against the US dollar (about 70 percent of airlines’ operational costs are US dollar-denominated). The rupiah has depreciated around 18 percent against the US dollar so far in 2015.
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia